US: Income growth remains strong - Wells Fargo

According to analysts from Wells Fargo, today’s personal income and spending report in the US showed that income growth remained strong and also, at the same time, indicated that consumer remains cautious when is time to spend. 

Key Quotes: 

“Personal income increased 0.4 percent in May after increasing 0.3 percent in April month over month. Disposable income, on the other hand, increased at a stronger 0.5 percent compared to 0.3 percent month over month in April. In real terms, disposable personal income increased a strong 0.6 percent on the month, after doing so by only 0.2 percent in April. It is clear that inflation had a relatively significant negative impact on personal income in April while that effect was reversed in May. That is, the  PCE price index increased 0.2 percent month over month in April, while it was -0.1 percent in May, helping the real numbers for May in the process.”

“Perhaps one of the biggest disconnects early this year has been between the strong improvement in consumer confidence and personal consumption expenditures (PCE). Although PCE was further upwardly revised in the first quarter of the year, from an increase of 0.6 percent to an increase of 1.1 percent, consumer demand has remained relatively weak, especially considering the strength in income as well as confidence.”

“We are still confident that our forecast for PCE to increase at an annualized rate of 3.3 percent in the second quarter is achievable if we have a strong June real PCE number. However, we realize that the mismatch between consumption and confidence is something that makes our real PCE forecast for the second quarter exposed to downside risk.”

“Since spending remained weak and income remained strong, the personal saving rate continued to increase in May, hitting 5.5 percent of disposable income. Thus, Americans are in good shape to increase consumption—the question is when?”